- 1.What actions are available to creditors prior to a formal insolvency proceeding to recover on a defaulted loan or obligation of a debtor? Are there any expedited formal proceeding?
Under Argentine law, upon default of a loan or obligation (whether at its stated maturity or upon acceleration) and as long as an insolvency proceeding of the relevant debtor has not commenced, creditors would be entitled to initiate legal actions for the collection of owed amounts.
In any case, creditors may file an ordinary action, on which any matters related to the claimed obligation may be discussed (being the debtor allowed to file several defences) and a large number of proofs may be produced. This type of process usually takes between two or three years to be ruled at first instance level, and one or two additional years for a subsequent Court of Appeals decision.
There is also a summary proceeding, available for those creditors who have their credits evidenced by specific documentation (such as promissory notes, checks, certificates of negative bank account balance, etc). In this process, the background of the defaulted obligation cannot be discussed, and the debtor may only file a limited number of defences (lack of jurisdiction; lack of legal personality; concurrency of legal actions; alteration or insufficiency of title; statute of limitation; payment; set-off; reduction, extension, partial forgiveness, novation or settlement; and res judicata). Normally, a first instance ruling may take up to one year (depending on the defences eventually filed and the necessity of proof to be produced). In the context of summary proceedings, preliminary and protective measures (such as attachment of assets, restraining order against use or transfer of property, etc) may be easily and rapidly obtained.
In either case, when filing the action the creditor shall pay a court tax amounting to 3 per cent of the principal and interest claimed amounts (that may be recovered from the debtor if the action is finally admitted). Further, in the event any of these alternatives were dismissed and court costs were imposed upon the filing creditor, it is to be taken into account that the fees (including the opposing party’s fees) are established on the basis of the claimed amount.
- 2.What duties do directors or officers of a company owe creditors or other third parties if the company is insolvent or in financial difficulties, or has negative net worth? is there a standard of care towards third parties? in what circumstances can officers and directors be found liable for continuing to operate a company in financial difficulties? Can they be found criminally liable?
Argentine bankruptcy law provides that directors or officers of a bankrupted company shall indemnify any damages caused by them when they have wilfully produced, facilitated, allowed or worsened the company’s financial situation.
Furthermore, Argentine corporate law states that directors are joint and severally liable in front of the company, its shareholders and third parties in case of wrong performance of their functions, breach of law, breach of company’s by-laws, and any other harm caused by wilful misconduct or gross negligence. The applicable standard of care is the care of a good businessman. Directors can be found criminally liable if they conduct the company’s business knowingly defrauding its creditors.
- 3.Can a creditor that has secured debt foreclose on the collateral or sell collateral in a private sale? if so, what rules exist to ensure the sale or foreclosure generates the maximum amount of sales proceeds possible? Can lenders take possession or control of the underlying collateral? are there any accelerated procedures available for secured creditors, and if so, under what circumstances can they be used?
Under Argentine law, a creditor whose credit is secured by mortgage or pledge can foreclose on the underlying collateral throughout court proceedings, and can also take possession or control of the relevant asset in case that possibility has been previously agreed in the relevant documentation.
This is the most accelerated procedure available for secured creditors. In order to ensure that the foreclosure generates the maximum amount of sales proceeds possible, the assets are sold through public auctions, and announced in newspapers.
- 4.What types of insolvency proceedings are available in your jurisdiction? are different insolvency proceedings available for individuals and companies? is there any distinction made between ‘preventative’ insolvency proceedings and ‘actual’ insolvency proceedings?
Argentine law provides for three types of insolvency proceedings: reorganisation proceedings known as concurso preventivo (voluntary proceedings only, preventative of liquidation); pre-packaged plans known as acuerdo preventivo extrajudicial (also voluntary, preventative of liquidation); and bankruptcy (liquidation) proceedings known as quiebra (either voluntary or involuntary). The same insolvency proceedings are available for individuals and companies.
There are a couple of simplifications in the proceedings, though, if the relevant insolvency proceeding qualifies as “small” according to the law, that is:
- if the outstanding debt of the debtor is less than 100,000 Argentine pesos; or
- there are not more than 20 creditors; or
- the debtor has not more than 20 employees.
These “small” insolvency proceedings have less formal requirements, does not envisage a creditor’s committee and the cramdown does not apply to them.
- 5.On what grounds may a debtor company be placed into an insolvency proceeding? who may do this? what are the grounds for a voluntary proceeding? if an involuntary proceeding is filed, must a bond be posted or is there any risk of liability to the creditor or creditors who filed the action? what effect, if any, does a filing have on a subsidiary or affiliate of the debtor? are there any grounds for consolidating or coordinating insolvency proceedings involving related parties? are inter-company or affiliate claims treated differently in terms of recovery or voting?
According to Argentine law, a reorganisation proceeding may only be commenced voluntarily by the relevant debtor, who must submit to the commercial court an application for reorganisation together with proof of the debtor’s inability to pay debts as they fall due. The application must include, among other things, a complete list of all assets and liabilities, a complete list of all creditors showing all amounts owed, and a copy of financial statements for the past three years.
A bankruptcy proceeding for the liquidation of the debtor’s assets may be commenced upon the failure of a reorganisation proceeding, and it may also be commenced either voluntarily by the debtor or involuntarily against the debtor by any of its creditors. Any involuntary application by a creditor requires evidence that the debtor has not paid its obligations as they fall due or any other proof showing its insolvency. Once notified of the existence of an involuntary application, the debtor has five days to demonstrate its solvency. The court will resolve the issue immediately and decide to open bankruptcy proceedings or reject the involuntary application. The bankruptcy petitioner has no need to post any bond nor has any liability, other than the payment of fees and expenses in case of rejection of its petition.
Unless the bankruptcy was commenced as a result of a failed reorganisation proceeding, a liquidation proceeding may be converted into a reorganisation proceeding if required by the debtor within 10 days of the publication of the bankruptcy notices, subject to the debtor complying with the relevant reorganisation proceedings requirements.
In principle, the filing of an insolvency proceeding by a company does not have any effect on its affiliates or subsidiaries, unless: in case of a reorganisation proceeding, the petition is jointly filed by other companies of the same group that may be affected by the insolvency of one of them; or in case of a bankruptcy proceeding, the bankruptcy may be extended to such subsidiaries or affiliates if exceptional circumstances occur, such as certain fraudulent conducts or commingling of assets. There are no legal grounds for consolidating or coordinating insolvency proceedings in other cases.
Intercompany and affiliate claims are not treated differently by the law in terms of recovery and voting, except for the case of the controlling shareholder of the company, unable to vote (see question 7).
- 6.What notifications and meetings are required after the company has been placed in an insolvency proceeding? Do the insolvency laws recognise bondholders under an indenture? what must they show to prove their ownership interest in the underlying debt?
Argentine bankruptcy law establishes that, in case of reorganisation proceedings, within 30 days of the filing of the application, an ordinary shareholders’ meeting of the debtor must approve such filing. If the shareholders’ approval is not filed within such period the proceedings are terminated. When the court declares the reorganisation proceedings opened, the court will order that the debtor publish notice of the reorganisation proceedings in the official gazette and in well-known newspapers in each jurisdiction where the debtor is domiciled or has any establishment. Such notices shall also mention the last date for creditors to file their claims with the appointed trustee, which is generally 15 to 20 days after the publication of the notice of the reorganisation proceedings (approximately four months after the initial filing). In addition to that, the court-appointed trustee is required to notify each creditor listed in the debtor’s application regarding the reorganisation proceedings and last date for the creditor to file evidence of its claim. In case of bankruptcy proceedings, notices are published in the official gazette of each jurisdiction where the debtor is domiciled or has establishments.
Argentine bankruptcy law also recognises bondholders under an indenture. For instance, the proof of claims which any and all creditors shall file to be recognised as such in the insolvency proceeding, can be filed by the indenture trustee on behalf of the bondholders; provided, however, that the bondholders can also perform such action individually.
In the latter case, bondholders shall prove their ownership interest in the underlying debt evidenced by a global note by attaching a certificate issued by the relevant foreign or local depository entity (Euroclear, Clearstream or DTC in the first case, Caja de Valores SA in the second one), although in order to avoid potential objections is highly recommendable to transfer the holding to Caja de Valores SA.
- 7.How are contingent creditors dealt with? How are inter-company claims handled? if so, has this been challenged and with what result? are there special rules for certain contracts?
Under Argentine bankruptcy law, contingent creditors shall file proof of their claims as any other creditor, although in principle they are not entitled to vote on any reorganisation plan proposed by the debtor until their credits became effective.
Inter-company creditors shall also file proof of their claims, and are entitled to vote, with the sole exception of the direct controlling shareholder. (In most of the cases on which such voting right for other inter-company creditors has been challenged, the objection was rejected: only in certain exceptional cases the prohibition to vote was extended to subsidiaries and/or indirect controlling shareholders).
Argentine bankruptcy law regulates the impact of the bankruptcy on contracts previously entered into by the debtor, including specific regulation for agreements such as forwards, real estate rents, insurance, etc (each such agreement with a special treatment).
- 8.What effect does the commencement of an insolvency proceeding have on the debtor and its operations? is there an automatic stay that prevents third parties from acting against the debtor? Can a debtor terminate or reject contracts to which it is a party?
In accordance with Argentine law, the commencement of reorganisation proceedings automatically implies: a suspension of most claims against the debtor arising prior to the filing of the application for reorganisation (including bankruptcy petitions filed by creditors); and a prohibition to bring new judicial process against the debtor based on claims previous to the initial filing. All debts are automatically accelerated and interest on unsecured debt ceases to accrue (but only for purposes of calculating the creditors’ majorities).
As for contracts entered into prior to the proceedings, the debtor may determine whether it will continue to perform, with the prior approval of the bankruptcy court, contracts pursuant to which both parties have reciprocal and pending obligations. If the debtor does not agree to continue to perform, the contract is terminated. If the debtor does not decide to continue an agreement within 30 days after the reorganisation proceedings are opened, the creditor may terminate the contract after notice to the debtor and the trustee.
Similarly, in bankruptcy proceedings all enforcement proceedings are automatically stayed as of the date on which the court orders that the debtor is subject to bankruptcy proceedings. As for contracts, the trustee is required to render an opinion as to whether agreements pursuant to which both parties have reciprocal and pending obligations should be continued or terminated within 20 days after the notice announcing the bankruptcy is published. The court is required to approve any decision of the trustee regarding such agreements. If the trustee or the court has not made any decision regarding such agreements within 60 days after the notices announcing the bankruptcy was published, the creditor may request the termination of the agreement and the agreement will be deemed terminated unless the court notifies a creditor of its order continuing such agreement within ten days following the application.
In connection with the effects of insolvency proceedings on the debtor’s operations, please see question 17.
- 9.How are secured creditors treated in an insolvency proceeding? How do they protect their collateral, particularly liquid assets? Can they seek remedies? Must their approval be obtained to use or dispose of their collateral? How are unsecured creditors treated? How are equity holders treated? Could an equity holder recover prior to creditors being paid in full?
Argentine law states that under reorganisation proceedings, secured creditors are permitted to initiate or continue, after the respective filing of the proof of its claims, any foreclosure proceedings on their collateral, unless the court issues a one-time exceptional injunction against foreclosure proceedings, which may only last up to 90 days. To the extent a secured creditor’s claim is less than the value of the collateral, interest will continue to accrue during the reorganisation proceedings up to the excess value of the collateral.
Under bankruptcy proceedings, secured creditors may pursue the sale of the underlying collateral with no need to wait for its liquidation together with other assets the debtor may have (subject to exceptions in specific cases). In any case, they have the right to participate in all relevant matters of the liquidation process, such as the determination of method of sale or the offered price, and their approval must be obtained to use the collateral.
Unsecured creditors are differently treated according to the type of insolvency proceedings.
In case of reorganisation proceedings, the reorganisation plan that the debtor must file is typically addressed to these creditors only, and they are entitled to whether accept or reject it. If the plan is finally approved by the necessary majorities and endorsed by the court, they will have the right to demand fulfilment of the debtor’s obligations thereunder, and to request bankruptcy declaration in case of default.
In the event of bankruptcy proceedings, unsecured creditors are entitled to collect their claims on a pro rata basis, after payment of the preference creditors and the expenses of the process.
Equity holders are fully subordinated to creditors. Equity holders cannot recover prior to creditors being paid in full.
- 10.What is the effect of an insolvency proceeding on current and retired employees?
Since labour claims have a preference ranking, employees have the right to be promptly paid, with no need to wait for the approval of the reorganisation plan (in case of reorganisation proceedings) or the distribution of liquidation proceeds (in case of bankruptcy proceedings). Furthermore, in reorganisation proceedings, in case the debtor has no immediately available funds enough to pay such labour claims, 3 per cent of its monthly gross income shall be used for that purpose according to a proportional payment plan to be prepared by the court-appointed trustee.
- 11.Do directors or officers of companies in insolvency proceedings suffer any consequences?
In the reorganisation proceeding known as concurso preventivo, directors cannot travel outside of Argentina without prior notice to the relevant judge. If the director’s intention is to stay outside of Argentine for more than 40 days, judge’s authorisation is required.
In the bankruptcy proceedings known as quiebra, directors cannot travel outside of Argentina without previous judicial authorisation (until the submission of the court-appointed trustee’s general report, which is due approximately six months after the declaration of bankruptcy), and they also suffer disqualification from serving as directors, officers, trustee, liquidator or founder of corporations for one year, counted as from; the bankruptcy decision, if the director was serving as such at that time; or the court’s decision about the date on which insolvency commenced, if the director served as such during that insolvency period but ceased before the bankruptcy declaration.
- 12.How do the various types of claims rank in an insolvency proceeding? Do some claims automatically have higher priority?
According to Argentine bankruptcy law, creditors with ranking priority are mostly those related to tax and labour claims or secured by mortgages or pledges.In reorganisation proceedings, in principle these creditors are not affected, since reorganisation plans are normally addressed to common creditors. Labour claims, as described in question 10, have the right to be promptly paid, with no need to wait for the approval of the reorganisation plan.
In bankruptcy liquidation proceedings, the order of priority of payment of claims is as follows:
- expenses of the bankruptcy proceedings.
- special preferences regarding specific assets:
- construction, improvement or maintenance expenses regarding an asset will be paid from the proceeds of the asset, to the extent the asset was still in the debtor’s possession as of the commencement of bankruptcy;
- salaries and related compensation of workers will be paid from the proceeds of the sale of merchandise, raw material and equipment located on the debtor’s premises;
- specific taxes and duties will be paid from the proceeds from the liquidation of the assets to which such taxes apply; and
- mortgages and pledges will be paid from the proceeds of the sale of the mortgaged or pledged assets.
GENERAL PREFERENCES:
- unpaid claims of workers for compensation and benefits;
- social security claims; and
- taxes and duties;
Claims with a general preference may not receive more than 50 per cent of the proceeds from the liquidation of all of the assets of the debtors.
After all of the debtors’ assets have been liquidated, the trustee is required to submit a final report that describes the liquidation process and includes a proposal for distributions to all of the creditors in order of their priorities. Once the court resolves any objections (to be filed within 10 days after the submission of such report), distributions to creditors are made.
- 13.Are local creditors treated differently from foreign creditors in practice? What laws exist to prevent such disparate treatment? What factors contribute to how effectively those laws are applied?
Argentine bankruptcy law specifically provides that recognition of a foreign creditor (ie, a creditor whose credit is payable outside Argentina and does not correspond to an insolvency proceeding opened outside Argentina) in an insolvency proceeding opened in Argentina is subject to prior demonstration by the foreign creditor that, reciprocally, a local creditor (ie, a creditor whose credit is payable in Argentina) is allowed to be recognised as creditor and collect its claims -in equal conditions- in an insolvency proceeding opened in the foreign country where the foreign credit is payable.
In practice, such reciprocity is usually evidenced by a legal opinion or affidavit from a law firm of the relevant foreign country.
In short, foreign and local creditors are treated equally as a general principle, with the sole exception of those cases on which the above-mentioned reciprocity is not proved.
- 14.What level of creditor support is needed to approve a reorganisation plan? Can secured creditors and other priority claim holders that do not approve a reorganisation proposal be ‘crammed down’? Are there any
substantive criteria that a plan must satisfy? Must hearings take place or documents be distributed?
Argentine bankruptcy law provides that in a reorganisation proceeding, once the creditors have been classified (in accordance with a classification proposal to be made by the debtor and approved by the court), the debtor is required to negotiate with them in each category and obtain their acceptance of a proposal for reorganisation within a 90-day period (which could be extended another 30 days) called “exclusivity period”.
The proposed plan of reorganisation must give the same treatment to all creditors within their category but need not necessarily treat the categories in the same manner. The debtor’s proposal can include any form of reorganisation of the debtor’s obligations, including (without limitation) discount of the principal amounts owed, reduction in interest rates, lengthening of the repayment terms, exchange of claims for equity, issuance of new debt or equity securities, and granting of guaranties by third parties.
Each creditor is entitled to vote on the proposal, which will be approved if a majority in number of creditors within each category that hold at least two-thirds of the claims in that category vote affirmatively. It should be noted that, in the case of bondholders, there is a specific rule that states that the bondholders should vote for the proposal in a meeting called for that purpose, and that all the affirmative votes are deemed as the vote of just one person, and that the same mechanism applies in connection with the negative votes.
Exceptionally, the court can approve a proposal for reorganisation even if there is a category of creditors in which the debtor did not reach the legal majority, subject to certain requirements (being the most significant one that the proposal should be accepted by at least three-quarters of the unsecured creditors).
Priority ranking creditors will be bound by a reorganisation proposal only if there is any such plan addressed to them (which is not mandatory nor usual), and it is approved by the same majorities above-mentioned for creditors with general preferences, and by unanimity for creditors with special preferences (including secured creditors).
There are no rules for the distribution of documentation, although is common practice the distribution of the reorganisation proposal among the creditors to be bound by it during the above-mentioned “exclusivity period”. Moreover, five days before the expiration of such term, a reporting hearing takes place at the court, on which the debtor shall explain the status of the negotiations with creditors and answer any questions regarding the reorganisation plan.
- 15.May creditors trade their claims during the course of a reorganisation? what impact, if any, will it have on voting for a plan?
According to Argentine law, creditors are able to trade their claims during an insolvency proceeding, and as a general rule such trade should not affect the respective voting rights, unless the trading creditor was already under one of the exceptional situations on which voting is not allowed (controlling shareholder, blood relatives to an individual debtor, etc). Also, there are some precedents on which the exercise of such voting rights was objected on the basis that the trade was deemed as a fraudulent transaction comparable to the purchase of claims by the debtor (which is prohibited).
- 16.Does the government tend to play an active role in insolvency proceedings? What factors determine this?
The Government tends to play a more active role in insolvency proceedings, determined basically by domestic politics.
In June 2011, by enacting the law 26,684, the Government made important changes to the Argentine bankruptcy law, fundamentally oriented to enhance the rights of labour creditors and labour unions or cooperatives created by such creditors.
Such measures encompassed, among others;
- the mandatory inclusion of a representative of labour creditors in the successive creditors’ committees that shall perform control duties during the insolvency proceedings;
- the enhancement of the labour creditors to be promptly paid in the reorganisation proceedings;
- the allowance to any labour cooperative created by the employees of the insolvent debtor to participate in the “cram down proceeding” mentioned in question 19 (entitling them to use their credits in such proceeding and instructing the National Tax Authority and the National Argentine Bank -when they are creditors of the insolvent company - to conform the reorganisation proposal that such cooperative may file and grant the more favourable conditions for refinancing that they have available);
- the obligation of the Government to provide technical assistance to continue the course of business of the insolvent entity to any cooperative formed by the labour creditors that received judicial authorisation for such continuation;
- the possibility for the bankruptcy court to suspend, upon request of the labour union or cooperative and for a period of up two years, the foreclosure proceedings on mortgaged or pledged assets of the insolvent company; and
- the possibility of any cooperative formed by the labour creditors to request the purchase of the insolvent company’s assets or establishments for their valuation amount, and to set off their labour credits against such purchase price.
It must be noted that although such law is already in force, it shall also be complemented by ancillary regulations to be enacted by the Executive Branch that have not been issued yet.
- 17.What kind of court supervision is there in each type of insolvency proceeding? Is a trustee or receiver (or other court-appointed officer) appointed to supervise the debtor or can the debtor continue to
control operations during the insolvency proceeding? Can creditors form creditors’ committees? what formal role do creditors (or creditors’ committees) play in the process? Do insolvency proceedings permit competing reorganisation plans? Are the judges that supervise and administer the process specialised? Does a debtor company or its creditors have any power to select or influence the selection of the
trustee, receiver or other court-appointed officer?
Under Argentine law, during the reorganisation proceedings, the debtor continues in possession of its assets and existing management continues to operate its business under the general supervision of the court-appointed trustee. Existing rules of corporate governance do not change. The debtor is authorised to continue to operate its business in the ordinary course of business. Any transactions involving dispositions of assets or issuance of debt, or exceeding the scope of the ordinary course of business, require prior court approval after notice to the court-appointed trustee and the creditors’ control committee (such committee having advice functions). If the debtor violates any of the rules applicable to the administration of its assets during the reorganisation proceedings, the court may place the court-appointed trustee in direct control of the debtor’s day-to-day business operations and replace management.
In bankruptcy (liquidation) proceedings, unlike reorganisation proceedings, the debtor is removed from the administration of its assets, and a court-appointed trustee takes control of the assets to preserve, administer and liquidate them (matters on which the creditors’ committee has advisory faculties). Although the trustee is authorised to sell the business as a going concern, in many cases the debtor’s business is shut down and the assets liquidated by the trustee. In certain exceptional circumstances involving public utilities or where irreparable harm will occur to creditors or employees, the court may order that the debtor’s operations continue under the supervision of the trustee pending their liquidation.
In both reorganisation and bankrupcty proceedings, there are creditors’ committees with an advisory role and broad powers to request information, whose members are the representatives of the labour creditors and other significant creditors. In the reorganisation proceedings, there are two successive and provisory control committees that, as mentioned above, have information powers and advisory functions until the endorsement of the reorganisation plan, and a third and definitive committee who controls the performance of the endorsed reorganisation plan. In the bankruptcy (liquidation) proceedings, the committe has advisory faculties on any matter regarding the administration and liquidation of assets.
In reorganisation proceedings, during the “exclusivity period” mentioned in question 14, only the debtor may submit reorganisation plans or proposals to its creditors and, therefore, no competing proposals are allowed. Such limitation does not apply if the debtor fails to obtain the support of such plan by the relevant majorities and a “cram down proceedings” is opened as described in question 19. In that case, any interested third party (and also the debtor) may submit competing reorganisation plans to the creditors, and the one who first obtains the required majorities gets the right to acquire the debtor company’s capital stock as also described in question 19.
In any insolvency proceeding, the judges are specialised in commercial matters, including insolvency regulations.
Neither the debtor company nor creditors have any power to select or influence the selection of the trustee, receiver or other court-appointed officer, which are selected from lists in a public draw.
- 18.May a debtor obtain financing while in insolvency will the lender enjoy special rights or preferences for providing debtor-in-possession financing?
Argentine law does not prevent a debtor under a reorganisation proceeding or a pre-packaged plan to seek and obtain financing, provided, however, that if such financing exceeds the scope of the ordinary course of business, implies the issuance of debt or requires granting of any special rights or preferences, a debtor under a reorganisation proceeding shall first obtain the court approval as described in question 17. Lenders providing such finance will not be subject to the insolvency proceeding (which applies only to debts incurred prior to its commencement) and in principle they shall not enjoy any special rights or preferences, unless so agreed with the debtor and approved by the court as above-mentioned.
- 19.What happens at the end of an insolvency proceeding? If there is a discharge of prior claims, is it permanent or subject to any conditions subsequent?
Under Argentine law, if the applicable majorities in all categories of creditors accept the proposal for reorganisation and the court endorses it, the reorganisation plan will become effective and the debtor will emerge from the reorganisation proceedings. Such plan shall be binding to all unsecured creditors, including those ones that did not accept it, and will have permanent effects. The discharge of prior claims may be permanent or conditional, depending on which was agreed in the reorganisation plan of each particular case. Once the reorganisation plan has been declared duly completed by the court, a one-year period on which the debtor is not allowed to file a new reorganisation proceeding starts to run.
If the debtor is unable to obtain the required acceptances from all of the categories within the required period of time, the court will open up a “cram down proceeding”, which will permit third parties to make a proposal to the creditors in connection with an acquisition of the debtor’s capital stock (with the debtor having a second chance to obtain acceptances from the required majorities). The third parties are required to offer to pay to the equity holders of the debtor’s shares an amount equal to the valuation of the company previously set by the court (with the respective advice), amount that shall be reduced to the same extent that the debts have decreased as a consequence of the reorganisation plan proposed during this “cram down proceeding”. If the debtor or any third party are unable to obtain the requisite acceptances from all of the creditor categories, the reorganisation proceedings will be converted into bankruptcy liquidation proceedings for the debtor. The “cram down proceeding” does not apply in the cases in which the debtors are deemed to be minor companies (with less of 100,000 Argentine pesos liabilities, 20 workers or 20 creditors) or individuals.
- 20.How long do restructurings last? is there a formal deadline?
Depending on the complexity of the reorganisation proceeding and the number of parties involved, the actual time required to complete a reorganisation may take as long as two years, or even longer in several cases. There is no formal deadline for completion of the proceedings, although such deadlines do exist for different procedural steps.
In bankruptcy proceedings, the process may also take up to two years, and eventually a longer period in cases in which there is a large number of assets to be liquidated or the special nature of such assets turns difficult its liquidation.
- 21.Is there an expedited or summary proceeding available to obtain court approval of an out-of-court restructuring plan? If so, what types of claims and creditors may participate and how does the process work?
As stated in question 4, Argentine bankruptcy law provides for pre-packaged plans, for agreements reached by a debtor who is in financial difficulties or insolvent with a certain required majority of its unsecured creditors for the purpose of restructuring all of its unsecured liabilities and which, after approval granted by a court of competent jurisdiction, is effective also in respect of unsecured creditors which have not been party to such agreement nor accepted it.
To obtain the judicial approval of the agreement, the debtor must satisfy certain formal requisites (basically the same required for the reorganisation proceedings, and mainly related to the composition of its assets and liabilities) and substantial requisites (the acceptance of the agreement by the creditors, with the same majorities required for the reorganisation proceedings: simple majority of persons representing two-third parties of the claims).
The filing of the agreement, once it has been published by notices in the official gazette and any widespread coverage newspaper, causes the automatic suspension of all claims against the debtor, including bankruptcy petitions, until the court makes a final decision. In respect of claims secured with pledges or mortgages, any forced sale or disposition of the affected collateral is stopped but it does not impede the course of the procedure tending to such forced sale. After the court makes its final decision, whether for or against the approval of the agreement, such secured creditors may proceed with the forced sale of the collateral. The approval of the agreement by the court turns it binding to all unsecured creditors including the ones that were against the agreement or were not party at all in the negotiations. The content of the agreement is not regulated and it is subject only to contractual terms. Classes of creditors may be created in accordance with objective criteria but it is advisable to offer the same agreement to each creditor of the same class.
As to the procedure, the filing is published for five days in a newspaper with broad coverage where the company operates and in the official gazette, in both cases in each jurisdiction where the debtor is domiciled or operates. Within the following 10 days, any creditor could object of the agreement for two reasons, namely, relevant mistakes in the composition of the debtor’s assets and liabilities listed in the filing; and absence of the legal majorities required for the approval. If the legal requisites are fulfilled and there are no objections (or, if being any, it is rejected), the court shall approve the agreement. As it is a private procedure, it is much more expedient to reach an agreement and the required formalities are very simple. Also, after filing with the court, the court proceedings are minimum and expedient (for instance, it is not necessary the proof of claims which are typical in the reorganisation proceedings).
- 22.May creditors offset debts owed to them by the debtor in an insolvency proceeding? Does it require court approval? Can creditors recover the expense of participating in the process? if so, how is that dealt with?
Argentine bankruptcy law provides that upon the commencement of an insolvency proceeding, creditors cannot offset debts owed to them by the insolvent creditor. In liquidation proceedings, secured creditors having a mortgage or a pledge on certain asset of the debtor may set off such secured claim against the purchase price of that asset, and labour creditors may also set off their preferred claims against the purchase price of the debtor’s assets or establishments. Moreover, as a general rule creditors are not entitled to recover the expenses of participating in the process.
- 23.If a debtor company has tax losses prior to a reorganisation, will it retain and be able to use such losses after it emerges from the reorganisation?
Yes. According to Argentine law, reorganisation proceedings do not preclude that possibility.
- 24.How are extraterritorial bankruptcy or insolvency proceedings recognised? Could a bankruptcy or insolvency judgment abroad substantially delay an insolvency proceeding in your jurisdiction? Does your jurisdiction contemplate ancillary or parallel insolvency proceedings with respect to a foreign proceeding? if a company organised under the laws of your jurisdiction entered into extraterritorial bankruptcy or insolvency proceedings, would those proceedings be recognised in your jurisdiction?
Under Argentine bankruptcy law, the opening of an extraterritorial insolvency proceeding is valid cause for the opening of a similar proceeding in Argentina, at request of the debtor or any creditor payable in Argentina. As a general rule, such extraterritorial insolvency proceeding can not be invoked against the creditors whose credits are payable in Argentina in order to dispute them any rights over assets located in Argentina.
In the case of a bankruptcy proceeding, creditors of an extraterritorial bankruptcy proceeding are entitled to collect any liquidation balance, once the creditors recognised in the local proceeding have been paid.
If a company domiciled in Argentina enters into extraterritorial bankruptcy or insolvency proceedings, those proceedings would be recognised in Argentina as long as those proceedings only affect the liquidation of assets that are not located in Argentina or the recovery of creditors payable outside of Argentina.
- 25.How frequently do debtor companies reorganise and emerge from bankruptcy as opposed to liquidation? what factors determine this?
The majority of the debtor companies filing reorganisation proceedings do not emerge from insolvency, some times because they do not reach the necessary approvals for reorganisation plans, but mostly because they are not able, once the relevant reorganisation plan has been approved, to comply with the obligations thereunder. A relevant factor on this is that most of the companies postpone the filing of insolvency proceedings until the very last moment, when their financial situation is usually irreversible.
- 26.In what circumstances could transactions that were entered into prior to an insolvency proceeding be vulnerable to challenge? By whom?
Argentine bankruptcy law states that certain transactions entered into prior to an insolvency proceeding may be declared null and void in the context of bankruptcy (liquidation) proceedings (not in reorganisation proceedings, where transactions may be so declared only if entered after the filing of the proceeding, when: made for no consideration for the debtor; impairing the situation of creditors which are subject to the proceeding; or without court approval when such decision is required, as indicated in question 17). Transactions subject to such declaration shall have been entered into during a period known as “suspect period”, that runs between the date on which the debtor first became insolvent (date that is determined by the court and may not reach back longer than two years prior to the declaration of bankruptcy or commencement of reorganisation proceedings previous to bankruptcy) through to the date of the declaration of bankruptcy.Those transactions can be so declared with no need of a specific challenge action in certain clear cases, such as those for which the debtor did not receive consideration, resulted in an indebtedness being paid prior to its stated maturity or upon which a previously unsecured claim (prior to its stated maturity) is secured with collateral. Aside from such limited cases, the court may also avoid transactions with a person that knew or should have known that the debtor was insolvent if such transactions are harmful to the creditors. For that purpose, a challenging action shall be brought within a three year period after the declaration of bankruptcy, by the court-appointed trustee (with prior approval of the majority of creditors) or, eventually, by one or more creditors personally.
- 27.If a debtor company has debt securities, does your jurisdiction’s insolvency or securities law provide for any special treatment for an exchange of those securities?
There is no special treatment for an exchange of securities issued by a debtor company in an insolvency proceeding.
- 28.Are there any common techniques that debtors use to manipulate or control insolvency proceedings? Have any of these techniques been challenged, and if so, what was the result?
Typical manipulations include the issuance of fraudulent debt, in order to prevail in the creditors’ decisions regarding the reorganisation plan, or diverting assets prior to entering into a reorganisation or a bankruptcy proceeding, in order to preserve them from liquidation. In general terms, these manipulations have been successfully challenged.
- 29.Are any amendments to your jurisdiction’s insolvency laws envisaged?
Yes. As stated in question 16, in June 2011 the Argentine Congress made important changes to the Argentine bankruptcy law, fundamentally oriented to enhance the rights of labour creditors and labour unions or cooperatives created by such creditors, and although such law is already in force, it still need to be complemented by ancillary regulations to be enacted by the Executive Branch that have not been issued yet.
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